Coffee (ICE Futures) (KC) Technical Analysis – August 2, 2016

September ICE Coffee futures finished lower on Monday while posting an inside move. The price action suggests trader indecision and impending volatility. The market finished at $143.45, down $2.40 or -1.64%. The primary catalyst was a recovery in the U.S. Dollar.

Traders were a little surprised by the weakness in coffee because of domestic market tightness. They expected auctions in Brazil to be bullish, however, they accepted the fact that the strong U.S. Dollar was a key factor in the weakness since coffee is a dollar-denominated currency. A strong dollar makes coffee more expensive to foreign buyers.

Hedge funds also trimmed their net long positions in Arabica Coffee futures and options for the first time in eight weeks, ending the longest run of bullish bets on the contract in more than two years.

Technically, the main trend is down according to the daily swing chart. However, momentum has shifted to the upside with the formation of a new main bottom at $139.05. A trade through this level will signal a resumption of the downtrend.

The main range is $122.80 to $154.80. Its retracement zone at $138.80 to $135.00 will be the primary downside target if the sell-off resumes.

The short-term range is $154.80 to $139.05. Its retracement zone at $146.95 to $148.80 is the primary upside target. Since the main trend is down, sellers are likely to show up on a test of this zone in an effort to stop the rally and form a secondary lower top.

Based on Monday’s close at $143.45, the direction of the market on Tuesday is likely to be determined by trader reaction to a pair of angles at $145.05 and $142.80.

A sustained move over $145.05 will signal the presence of buyers. This could create enough upside momentum to challenge the short-term 50% level at $146.95. Overtaking this level could trigger a surge into the resistance cluster at $148.80.

A sustained move under $142.80 will indicate the presence of sellers. This could trigger an acceleration into a series of uptrending angles at $142.05, $140.55 and $139.80. The latter is the last potential support angle before the $139.05 main bottom.

Taking out $139.05 will signal a resumption of the downtrend. The main 50% level at $138.80 is also the trigger point for a steep break into the main Fib level at $135.00.

Look for an upside bias on a sustained move over $145.05 and a downside bias on a sustained move under $142.80.